Prison and Jail Construction Report Gives Snapshot of Industry

Prison and Jail Construction Report Gives Snapshot of Industry

(01/03/2013)

LOS ANGELES — A recent report by Los Angeles-based IBISWorld, Prison and Jail Construction in the U.S., describes the current state of the industry and projections for the future.

IBISWorld is recognized as the nation’s most trusted independent source of industry and market research. The Prisons and Jail Construction in the U.S. report gives an outline of the industry in terms of revenue, losses, growth, key players, and more.

“Although the recession reduced the level of public and private investment for new correctional facilities, the need for more bed space remained as incarceration rates rose,” said IBISWirld analyst Deonta Smith, in a statement.

Coming off poor performance over the past five years as a result of low demand and limited government funds, the next five years are set to be bright for the prison and jail construction industry, according to IBISWorld. As the economy recovers, the prison and jail construction industry is set to rebound and will prompt an estimated 1.9 percent jump in revenue, to $2.4 billion, according to the report. Higher level of government and private investment will benefit the industry by pushing for more new facilities and expansions to existing ones. The trend is expected to boost the overall market for prison and jail construction and help stabilize revenue volatility.

Starting in 2009, revenue volatility became a concern for industry players, according to a statement by IBISWorld. Many participants tried to consolidate operations to become more stable and achieve greater economies of scale. Consolidation pushed down the number of branches at an average annual rate of 3.5 percent in the five years leading to 2012, according to a statement. At the same time, “a number of firms exited the industry, amid decreasing demand for construction projects and a reduction in government and private investment,” said Smith in a statement.

The report indicates that the poor economy has caused smaller firms to exit the industry, and in general the prison and jail construction industry has a low-level of concentration due to the fact that government construction projects are often intended to create jobs in the local economy. The four largest companies made up an estimated 33.1 percent of industry revenue in 2012. The report also explains that many prison contracts are often awarded to local contractors, resulting in a fragmented industry. The major players in the industry in terms of construction, according to IBISWorld, include Hensel Phelps Construction Company, The Turner Corporation and Gilbane Inc., of which some have turned to focus on regional markets.

The popularity of private prisons is also benefiting the industry, according to the report. Despite public budgetary cutback concerns, many state and some federal facilities are housing more prisoners in privatized facilities to benefit from lower per-day costs per inmates at these facilities, the report states. The report continues to explain that the growth in incarceration rates is expected to benefit the industry — even in states like California and Texas who have put in plans to decrease prison populations. The report states that private prison operators will benefit from this trend and both public and private investment in new construction and remolding projects is expected to grow in these densely populated states.

“Over the next five years, IBISWorld expects incarceration rates to increase at an annualized rate of 0.5 percent and local and state government investment to increase at an annualized rate of 1.1 percent,” according to the report.

The increases are expected to fuel industry revenue growth and encourage more firms to enter the industry. IBISWorld expects the total number of firms to increase at an annualized rate of 3.1 percent to 315 enterprises in the five years to 2017.